Moody's: New state adjusted pension liabilities show wide range of obligations; effect of new discount rates highlighted

Global Credit Research - 27 Jun 2013

New York, June 27, 2013 -- The burden of unfunded pension liabilities varies enormously from state
to state, according to a new Moody's Investors Service report,
"Adjusted Pension Liability Medians for US States."
Measures comparing the size of each state's adjusted pension liabilities
to its financial resources show a few states facing negligible liabilities
and other states with liabilities significantly greater than their annual
revenues.

The report covers fiscal 2011 and highlights the effects of Moody's
new discount rates and other adjustments to the states' reported
pension positions, and also shows the ratio of Moody's adjusted
net pension liabilities to each state's revenues. The ratios
range from a low of 6.8% for Nebraska to a high of 241%
for Illinois. The median value for all 50 states was 45%.
The top nine states had ratios greater than 100%, while the
bottom nine had ratios less than 20%.

Moody's uses measures comparing the size of adjusted net liabilities
to state resources in its credit analysis because they are indicative
of the strain the liabilities are likely to place on finances.
Adjusted net pension liability relative to governmental revenues is the
measure Moody's employs in its states' rating methodology
scorecard. Pension liabilities are one of many factors Moody's
considers when determining a state's credit rating.

Following Illinois, the states with the highest adjusted pension
liabilities relative to revenues in fiscal 2011 were Connecticut,
with a ratio of 189.7%, Kentucky (140.9%),
New Jersey (137.2%), and Hawaii (132.5%).

"The largest accumulated liabilities most often reflect management
decisions not to fund contributions at levels meeting actuarial guidelines,"
says Timothy Blake, a Moody's Managing Director. "In
recent years we have downgraded six of the ten states with the largest
pension burdens due to the growing size of their pension obligations,
which have been exacerbated by frequent underfunding."

Following Nebraska, the states with the lowest ratios were Wisconsin
with a ratio of 14.4%, Idaho (14.8%),
Iowa (16.1%), and New York (16.6%).
The wide variation in the accumulation of state net pension liabilities
reflects the differences among states in historical funding efforts,
management of pension benefits, and the extent to which states assume
responsibility for pension costs related to teachers and other local government
employees, says Moody's.

"While underfunding has contributed to large net pension liabilities,
total liabilities in states such as Illinois, Connecticut,
New Jersey and Maryland also include those for school districts and are
not reported in school district financial statements," says
Marcia Van Wagner, a Moody's Vice President -- Senior
Analyst.

Moody's adjusted net pension liabilities recalculate state pension
levels based on a bond market-determined discount rate and the
market value of pension plan assets. The goal of the adjustment
is to achieve greater comparability and transparency in Moody's
credit analysis.

The report also lists the percentage of liabilities of multiple-employer
pension plans that is allocated to the states. Moody's will
update this report later in the year when fiscal 2012 information is available
for all states.

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